[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
NATIONAL SECURITY BENEFITS OF TRADE
AGREEMENTS WITH ASIA AND EUROPE
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION, AND TRADE
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
MARCH 17, 2015
__________
Serial No. 114-11
__________
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COMMITTEE ON FOREIGN AFFAIRS
EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida BRAD SHERMAN, California
DANA ROHRABACHER, California GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio ALBIO SIRES, New Jersey
JOE WILSON, South Carolina GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas THEODORE E. DEUTCH, Florida
TED POE, Texas BRIAN HIGGINS, New York
MATT SALMON, Arizona KAREN BASS, California
DARRELL E. ISSA, California WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania DAVID CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina ALAN GRAYSON, Florida
MO BROOKS, Alabama AMI BERA, California
PAUL COOK, California ALAN S. LOWENTHAL, California
RANDY K. WEBER SR., Texas GRACE MENG, New York
SCOTT PERRY, Pennsylvania LOIS FRANKEL, Florida
RON DeSANTIS, Florida TULSI GABBARD, Hawaii
MARK MEADOWS, North Carolina JOAQUIN CASTRO, Texas
TED S. YOHO, Florida ROBIN L. KELLY, Illinois
CURT CLAWSON, Florida BRENDAN F. BOYLE, Pennsylvania
SCOTT DesJARLAIS, Tennessee
REID J. RIBBLE, Wisconsin
DAVID A. TROTT, Michigan
LEE M. ZELDIN, New York
TOM EMMER, Minnesota
Amy Porter, Chief of Staff Thomas Sheehy, Staff Director
Jason Steinbaum, Democratic Staff Director
------
Subcommittee on Terrorism, Nonproliferation, and Trade
TED POE, Texas, Chairman
JOE WILSON, South Carolina WILLIAM KEATING, Massachusetts
DARRELL E. ISSA, California BRAD SHERMAN, California
PAUL COOK, California BRIAN HIGGINS, New York
SCOTT PERRY, Pennsylvania JOAQUIN CASTRO, Texas
REID J. RIBBLE, Wisconsin ROBIN L. KELLY, Illinois
LEE M. ZELDIN, New York
C O N T E N T S
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Page
WITNESSES
The Honorable Carla A. Hills, co-chairman, Council on Foreign
Relations (former U.S. Trade Representative)................... 5
Michael J. Green, Ph.D., senior vice president for Asia and Japan
chair, Center for Strategic and International Studies.......... 11
Daniel S. Hamilton, Ph.D., director, Center for Transatlantic
Relations, The Paul H. Nitze School of Advanced International
Studies, Johns Hopkins University.............................. 18
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
The Honorable Carla A. Hills: Prepared statement................. 8
Michael J. Green, Ph.D.: Prepared statement...................... 13
Daniel S. Hamilton, Ph.D.: Prepared statement.................... 20
APPENDIX
Hearing notice................................................... 40
Hearing minutes.................................................. 41
NATIONAL SECURITY BENEFITS OF TRADE AGREEMENTS WITH ASIA AND EUROPE
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TUESDAY, MARCH 17, 2015
House of Representatives,
Subcommittee on Terrorism, Nonproliferation, and Trade,
Committee on Foreign Affairs,
Washington, DC.
The committee met, pursuant to notice, at 2 o'clock p.m.,
in room 2172 Rayburn House Office Building, Hon. Ted Poe
(chairman of the subcommittee) presiding.
Mr. Poe. The subcommittee will come to order. Without
objection, all members may have 5 days to submit statements,
questions, and extraneous materials for the record subject to
the limitation in the rules. I will now introduce myself for 5
minutes for an opening statement, and then the ranking member
will give his opening statement.
I am from the State of Texas. I live in the Houston area
and trade is the life blood of my district. Over half of
Houston, Texas' economy depends upon the Port of Houston. Many
people don't know that, even in Texas. And study after study
has shown that the more we trade, the more jobs there are in
the United States for Americans. The Port of Houston is an
export port. We export everything from fuel to little widgets
that make valves in foreign countries. Trade is more than just
a market access and jobs. Trade is a key part of foreign
policy. It is also part of, I believe, national security.
One of the biggest reasons why we won the Cold War is
because our economic model was so much better than that of the
Communist system. People around the world compared our economy
to the Soviet Union's and could see the difference and where
the U.S. was the beacon of freedom and free enterprise, the
USSR was all about government control. And when the U.S. opened
up trade around the world, USSR closed itself off.
Countries now in Asia are eager to reduce their economic
dependence upon China. They don't like Beijing's economic
model. They would much rather have a region based upon free
market principles. TPP is our opportunity to move into the
region in a free market direction and compete with China. It is
much better if the United States takes the lead in writing the
economic rules for the 21st century in Asia than if China did.
China steals intellectual property. It has state-owned
enterprises that get unfair subsidies from the central
government and it would not seem to me to be wise for the
Chinese model to expand in Asia.
The trade agreement written by China is going to be a lot
worse for American interest than if we write it. If we don't
get TPP accomplished, it is just not an economic price that we
pay. We would essentially be telling Asia that the United
States is not interested in Asia. Asian countries will
basically have no choice but to look to China as a trading
partner.
But there are also other strategic advantages for TPP. The
more economically connected we become in Asia, the closer
cooperation opens up in other areas like counterterrorism. For
example, Malaysia has had a problem with ISIS supporters. With
strong trade, we give governments with such types of ISIS
problems an incentive to work together on those kinds of tough
problems and solve them together. TPP is a chance for the
United States to show Asia that we care. Asia does not have to
submit to China's ways, and know that we can work together. But
most importantly, TPP is a credit for the United States.
A free trade deal the United States is negotiating with the
European Union, known as TTIP, offers similar strategic
advantages. Even more aggressive than China, Russia took over
the sovereign territory of Ukraine. I have met with the
Ambassadors of other countries in the Baltics. The Bulgarians,
and Romanians feel like they could be next for Russian
aggression. One of the reasons why it has been so hard to
cooperate with the EU on these issues is that Russia uses
Europe's dependence on Russia for energy to blackmail Europe.
Countries like Latvia, Finland, and Sweden get 100 percent of
their natural gas from Russia. Twelve countries in the EU get
over half their natural gas from Russia, so Russia threatens
Europe to get to them to do what Moscow wants.
Right now in the United States there is more natural gas
than we can use, but the United States Government will not
allow American companies to export natural gas. The only
exceptions are for companies exporting to a country with whom
we have a free trade agreement or companies that get special
approval from the Department of Energy.
The Department of Energy approval process has been slow, so
slow that drillers have stopped drilling because they know they
can't sell it. The long-term solution to this problem is to get
American companies sell natural gas around the world, but, in
the meantime, if we get TTIP done that also means we can export
LNG eventually to every country in the European Union and
Russia would no longer have a stranglehold over Europe. No
longer would Europe be reluctant to get tougher with Russia and
their aggression. This is just one strategic advantage of TTIP.
I think there are others.
Finally, TTIP and TPP could help push the world toward
greater liberalization. Formal global trade negotiations in
Doha are on hold, but together TTIP and TPP represent 90
percent of the world's GDP. These pacts help set the global
standard. And countries who do not want to be left out would
have to agree to the tough standards set by these agreements in
order to enjoy the benefits.
Trade agreements have a geopolitical effect far beyond
trade itself. I will now yield to the ranking member, Mr.
Keating from Massachusetts, for his 5-minute opening statement.
Mr. Keating. Thank you, Chairman Poe, for holding today's
hearing. And while I believe that there is a link between trade
and national security, I do not think that this correlation
should outweigh other serious concerns. For example, when the
existential need to counterbalance China exists, the fact
remains that several of the countries participating in the
Trans-Pacific Partnership, or TPP, negotiations remain stark
violators of core international standards. In fact, despite
claims that this agreement will better protect workers, at
least four of the major countries included in TPP are already
out of compliance with the international labor organizations'
core labor standards.
In Mexico, Malaysia, Vietnam, and Brunei, workers face on-
going and systematic abuse with each of them out of compliance.
I am additionally skeptical of the TPP agreement that goes
without meaningfully addressing currency manipulation,
protecting domestic manufacturers, banning commercial whaling,
and ensuring transparency.
Further, I am still unsure of what benefits this agreement
would bring to the U.S. Just last week, a record breaking $3-
billion deficit with Korea was announced by the Census Bureau.
These deficits equate to job losses and as we approach the 3-
year anniversary of the signing of the U.S.-Korea free trade
agreement, the numbers do not bode well for the future of TPP.
Quite frankly, there is still a lot left to be desired with TPP
and I am not sure the potential national security benefits are
worth the sacrifice to American families.
Yet, one trade agreement, if negotiated with global
standards in line, may provide new means to uphold the norms
that underpin the international trading system. The
Transatlantic Trade and Investment Partnership, or TTIP, has
remarkable potential to promote economic growth and create jobs
throughout the United States and European Union. Since this
agreement is between two economies that share a strong
commitment to the rule of law, transparency, and free markets,
it can help elevate health, safety, labor, and environmental
standards worldwide. Beyond trade and investment, TTIP, also
has significant strategic implications. The importance of the
Transatlantic Alliance has been underscored by Russia's
invasion of Ukraine, its increasing hostility toward
neighboring states, and the continued decline of fundamental
rights and a rule of law under the Putin regime.
The strengthening ties between the United States and the EU
that would result from TTIP would only complement the united
front that the U.S. and the EU have maintained throughout the
Ukraine crisis. TTIP would highlight the virtues of the Western
model and send a powerful signal to Putin and other
authoritarian regimes that the United States and Europe remain
as united as they ever were.
Further, our commitment to higher standards and basic
democratic principles is the basis for our prosperity, and that
prosperity is our best defense against governments that seek to
destabilize international order.
To conclude, Mr. Chairman, I think that the trade
discussions cannot be black and white. They should be as varied
as the countries and standards and the opportunities
represented in agreements themselves. And I look forward to
today's discussion and with that, I yield back.
Mr. Poe. I thank the gentleman. The chair will now
recognize the gentleman--I started to say UCLA, but I better
say just California, Mr. Issa, for his opening statement. One
minute per member.
Mr. Issa. Thank you, Mr. Chairman, and Ambassador, I did
fail to mention you are LA born, so perhaps UCLA is legitimate.
I am not going to get in the middle of that.
Chairman, I thank you for this important hearing. And in
brief, I agree more with Mr. Keating's comments than I normally
would. The fact is you cannot look at trade agreements in the
light only of the trade or all of them being equal. We do have
to look at labor laws, rule of law, and of course, the global
war on terror slash whatever other names you want to put on it.
We have to look at defense cooperation. We have to basically
even the playing field with all of our trade agreements. Most
of our trade agreements, including the one that I testified as
a civilian which was NAFTA during the Bush and early Clinton
years, were, in fact, about two of our closest neighbors on
which we had very few of these other issues to decide. But I
look forward to hearing from our witnesses. I join with the
chairman and the ranking member in saying that global free
trade is essential. We need to compete with China, but we also
need to compete with people that we can rely on in a number of
areas. I thank the chairman for his indulgence and yield back.
Mr. Poe. The chair will yield a minute to the other
gentleman from California, Mr. Sherman.
Mr. Sherman. Trade is critically important. That is why we
have to get it right which is hard to do when those in power in
our country benefit so much whenever we get it wrong. We are
told that we should be proud of the trade rules because we
wrote them. Yes, we wrote these trade rules and now we should
be as proud of them as the citizens of Madrid are of the
Spanish flu. We made the trade rules so that we will be making
nothing else in the United States. This deal is so bad
economically, they are trying to sell it on national security
grounds. But what does it do? It entrenches China two ways.
First, we have given up on currency manipulation. Why? Just
because we don't mention currency manipulation does not mean
the Chinese are cheating less. I have only been married a few
years, but I am told that I shouldn't----
Mr. Poe. Don't go there. Just don't go there.
Mr. Sherman. I shouldn't use that line with my wife.
``Honey, I am cheating less'' probably wouldn't do me any good.
Second, because of the rules of origin, we are going to see
products 50, 60, and really 80 and 90 percent made in China
with free access to the United States' market, and us getting
no access there. It is time for us to stand up for American
security that includes our economic security. It is time for us
not to juxtapose these bad deals against the status quo, but
these bad deals and the status quo against fair trade, against
real results-oriented trade agreements designed to bring our
trade deficit to zero within 10 years. I yield back.
Mr. Poe. The chair recognizes Mr. Perry for a minute.
Mr. Perry. I thank the chairman for holding this important
hearing. I don't know if the record should reflect that the
gentleman from California just admitted that he is cheating,
but it seems like in a way----
Mr. Sherman. Less. Less.
Mr. Perry. Oh, less. So important, right, exactly.
Mr. Sherman. If China gets our way with it, well, maybe
not.
Mr. Perry. Generally, when we talk about trade agreements
in Congress, the media and a lot of people focus on limited,
purely the economic implications. And while the economics of
trade are obviously important, there is a subtle, but
unquestionable geostrategic value associated with these global
economic partnerships. For example, along with the other
actions with our partners, the strategic value of giving our
European allies an alternative to Russian gas through American
LNG and the now realized cost of not doing so cannot be
understated. With that, I am pleased to be here to receive your
input on this topic of great importance and I yield back.
Mr. Poe. The gentleman yields back. Does anyone else wish
to be recognized for an opening statement? Ms. Kelly? All
right, I will now introduce the witnesses that we have before
us.
Ambassador Carla Hills is the co-chair of the Council on
Foreign Relations and chairperson and CEO of Hills & Company
International Consultants. Ambassador Hills has previously
served as United States Trade Representative and as Secretary
of the Department of Housing and Urban Development.
Dr. Michael Green is senior vice president for Asia and
Japan chair of the Center for Strategic and International
Studies. Dr. Green is also associate professor at the Edmund A.
Walsh School of Foreign Service at Georgetown University.
And Dr. Dan Hamilton is the Austrian Marshall Plan
Foundation professor and director of the Center for
Transatlantic Relations at the Paul H. Nitze School of Advanced
International Studies at Johns Hopkins University. Dr. Hamilton
is an award-winning author on the Transatlantic Economy and has
previously held a variety of senior U.S. Government positions.
Ambassador Hills, we will start with you. You have 5
minutes.
STATEMENT OF THE HONORABLE CARLA A. HILLS, CO-CHAIRMAN, COUNCIL
ON FOREIGN RELATIONS (FORMER U.S. TRADE REPRESENTATIVE)
Ambassador Hills. Mr. Chairman, Mr. Ranking Member, and
members of the committee, I thank you for inviting me to give
you my point of view on the national security implications of
free trade agreements and the importance that Trade Promotion
Authority has on our nation's ability to conclude effective
agreements.
Our nations' experience shows that free trade agreements
have a positive effect on our national security interests. Free
trade agreements stimulates economic growth. As economist Gary
Hufbauer at the Peterson Institute for International Economics
calculates that the opening of our markets since World War II
has increased our nation's GDP by roughly $1 trillion. That
increase in economic strength has contributed substantially to
our nation's ability to maintain the strongest defense
capability in the world.
The opening of markets has also strengthened the economies
of our major allies and brought us closer together on a number
of issues.
Developing countries have benefitted as well. According to
studies by Dr. William Cline at the Center for Global
Development, the removal of trade barriers on goods produced by
developing countries has a direct correlation to their success
in reducing poverty. And according to his calculations, on
average, when a developing country increases its ratio of trade
to its total output by just 1 percent, it achieves a 1-percent
reduction in its level of poverty. And reducing global poverty
through trade agreement not only advances our development
goals, it creates for us, as did our Marshall Plan, new
economic opportunities.
In addition, the negotiation of trade agreements with
poorer countries helps to avoid or reduce potential national
security challenges, for failure to enlarge their economic
opportunities makes them more susceptible to recruitment by
those who would do us harm.
Also impoverished nations often lose the ability to enforce
their laws or secure their borders, making it more difficult
for our Government to deal with security problems like
terrorism. And enlarging their opportunities reduces their
potential for instability which advances our national security
interests.
Continuing to build on our nation's economic strength
through strong trade agreements with countries rich and poor
will help ensure that we have the necessary resources going
forward to support equipment, technology, and manpower we need
to protect our security interests.
And Trade Promotion Authority, TPA, is a critical tool to
enable our Government to negotiate good and strong agreements.
Our Constitution vests the Congress the power to regulate
commerce, to levy duties, and it vests the Executive branch
with the responsibility for negotiating with foreign
governments including issues dealing with commercial trade.
TPA sets up a collaborative process used since 1934 when
President Roosevelt signed the Reciprocal Trade Act, as a
predecessor to TPA, and the Congress has passed a similar bill
18 different times since.
Under these procedures, the President gives Congress notice
of trade negotiation. Congress may set objectives for the
administration and may ask the administration to consult with
it during the course of the administration and in return,
Congress agrees to approve or reject, but not amend the trade
agreement that the administration presents. Our negotiators
cannot achieve the best trade deals if our trade partners
expect there will be a second negotiation with Congress.
Inevitably, they will hold back the key issues that we want the
most in anticipation of that negotiation with Congress.
To reach a good trade agreement requires striking a balance
on a broad range of issues that have differing degrees of
importance to the governments participating and a single
amendment can upset that balance and cause the agreement to
unravel. What happens beyond our borders for good or bad has an
impact here. We need to make every effort to take actions that
will generate good outcomes and minimize the bad and the
negotiating of a strong trade agreement will have positive
effects on our nation both economically and with respect to our
national security. To achieve that benefit requires the
Congress to pass Trade Promotion Authority. And I thank you.
[The prepared statement of Ambassador Hills follows:]
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Mr. Poe. Thank you, Ambassador. Dr. Green.
STATEMENT OF MICHAEL J. GREEN, PH.D., SENIOR VICE PRESIDENT FOR
ASIA AND JAPAN CHAIR, CENTER FOR STRATEGIC AND INTERNATIONAL
STUDIES
Mr. Green. Thank you, Mr. Chairman. I am here to talk about
the geostrategic importance of the Trans-Pacific Partnership,
TPP, but I want to begin by making the point that we are not
talking about a case with TPP where we need to sacrifice our
economic interests in order to advance our geopolitical
interests. There are geopolitical advantages that are
significant, but it is also likely to be a very good economic
deal.
These are countries, Japan, Vietnam, and others that have
not traditionally been so open. Now they are stuck. Their old
model of growth isn't working and they want to reduce their
dependence on China. And the leverage is largely with us. We
will write the rules and the estimates by the Peterson
Institute and others are that liberalization through TPP will
add 0.4 percent to our GDP, the U.S. GDP over the next decade.
That is a lot of money. So it is likely to be a good economic
deal. But let me tell you why it is important geostrategically
to our interests in Asia.
First, at CSIS, at my think tank, we did a survey of
leading political thought with leaders across Asia. And we
asked what they thought about President Obama's promise to
rebalance or pivot to the Asia Pacific region. And outside of
China, well over 80 percent said they wanted more of the United
States and they supported this. But well over half said they
had doubts that we could actually execute.
Our ability to pass TPA and TPP, and for the Congress and
the administration to get this done goes right to the heart of
U.S. credibility in the region as a whole. And extends even to
how seriously our allies take our security commitments and our
diplomatic commitments because from their perspective this is
so self-evidently in our own economic and strategic interests.
So it goes right to the heart of American credibility.
Second, a successful TPP deal will anchor our relationship
with Japan. A deal with Japan is likely to create twice as much
trade in U.S. exports than a deal without Japan. So it is good
for us economically.
For Prime Minister Abe, this is a critical way to jump
start what is politically hard for him at home and that is
restructuring the Japanese economy to grow. And we want the
Japanese economy to grow and to absorb our imports, but also
because Japan is now the second largest funder of the IMF,
World Bank, most of the international institutions, the United
Nations, and the most important host of U.S. bases. We have a
stake in Japan growing and leading because we share common
values and because Japan with some exceptions, such as their
difficult relationship with Korea and China, is quite respected
and popular in Asia and the anchor for our presence in the
region.
Third, a successful passage of TPA and TPP will decide who
over the coming decade writes the rules in Asia. We did another
survey at CSIS in 2009 and the majority of Asians thought that
the most important rulemaking and trade liberalizing framework
for Asia would be RCEP, the Regional Comprehensive Economic
Partnership, which includes 16 countries and not us. And it is
a China-centered trade arrangement. That was in 2009. Last year
when we asked the question what trade architecture or
arrangement is most likely to set the norms and the rules, the
answer by a large margin was TPP. We have real momentum,
particularly since Japan joined. To not pass TPA and TPP would
be to slowly pass the baton back to others to decide what the
rules will be, what the center of economic growth or the center
of economic norms will be. And obviously, we want that to be
us.
And finally, an interesting thing is happening in China in
response to TPP. A few years ago, the Chinese Government argued
that this was an instrument of the United States to contain
China and the Chinese lobbied very aggressively in countries
like Japan and New Zealand and Vietnam to try to block TPP.
When Japan entered the negotiations, the Chinese position
shifted. And so for the last 2 years, reformers in China who
want changes so that China can have a more effective economy,
are arguing that they can use TPP the way China used the World
Trade Organization, WTO negotiations, in the 1990s to force
change within China. So China is not in the TPP negotiations.
Notionally, it could be some day down the road, but immediately
passage of TPA and TPP will give us far more leverage, far more
purchase as we negotiate difficult issues with China because
China will understand this is where the region is going and who
is making the rules. Thank you.
[The prepared statement of Mr. Green follows:]
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Mr. Poe. Thank you, Dr. Green. Dr. Hamilton, your opening
statement.
STATEMENT OF DANIEL S. HAMILTON, PH.D., DIRECTOR, CENTER FOR
TRANSATLANTIC RELATIONS, THE PAUL H. NITZE SCHOOL OF ADVANCED
INTERNATIONAL STUDIES, JOHNS HOPKINS UNIVERSITY
Mr. Hamilton. Thank you, Mr. Chairman. I was asked to speak
on the geopolitical implications of the Transatlantic Trade and
Investment Partnership, the TTIP, so I will do that. I welcome
it because the discussion so far has been very focused on the
economic elements of this negotiation and there are
considerable other geopolitical elements as both you and Mr.
Keating mentioned.
I think it is best to understand the TTIP, not just as
another trade agreement, but as a way for the United States and
Europe to reposition themselves for the world we are facing, a
world of more diffuse economic power, intensified global
competition, and how do the core nations of the West act and do
they act together in that way?
It seems to me there are three broad areas of which there
is a geopolitical national security element to the TTIP beyond
the economics. One is about the transatlantic community itself.
The second is how we engage rising powers and whether we do it
together. And the third is how this will relate to the
international rules-based systems, strengthen it or weaken it.
On the first issue, the TTIP is potentially a powerful way
to reaffirm the bond across the Atlantic based on our economic
base, the geoeconomic base that we both have, $5.5 trillion
economy, 15 million workers owe their jobs to the healthy
commerce across the Atlantic. No other commercial artery is
integrated as that across the Atlantic. We release every year
an annual survey of all the jobs, trade, and investment. We are
going to do that tomorrow. But I can tell you, Mr. Chairman, in
Texas, the latest data show 300,000 jobs directly supported by
European investment in Texas and if you take the trade, all the
indirect effects, we would estimate over 1 million Texas jobs
directly dependent upon healthy commerce with Europe. And you
mentioned Houston's export center. Texas exports multiple times
more to Europe than it does to China.
The same for Massachusetts, Mr. Keating, about 150,000 jobs
are directly due to just European investment in Massachusetts.
About 500,000 overall if you put direct and investment
together. And I could go on.
There is more for Mr. Sherman, you know, there's more
employment in Los Angeles County by European companies than
Asian companies. California exports twice as much to Europe as
it does to China, a West Coast state.
And for Ms. Kelly in Illinois, 185,000 jobs are directly
supported by European investment in Illinois and over 500,000
Illinois jobs are dependent upon healthy commerce with Europe.
So it is our geoeconomic base, if you will. It is also
traditionally, of course, our geopolitical partner on so many
issues. And yet, there are questions of trust and commitment
across the Atlantic these days. NATO is perceived in some
quarters to be wobbly. TTIP would be the other side of the coin
of our commitment to Europe through our military alliance. And
I think particularly given the issues facing European security
these days, it is a vital reassurance of the U.S. commitment to
Europe.
It also would reassure Americans who wonder about the
European Union and whether it is inward or outward looking that
the EU would be a very strong outward-looking partner because
TTIP would essentially make that case.
The second area is how both of us together relate to rising
powers. And Dr. Green mentioned a few of those elements. But I
think one has to think about this. Those rising powers are each
having debates on how they relate to the international system.
Do they challenge it? Do they accommodate themselves to it? And
the message we have to those countries as they have those
debates is actually quite important.
In recent years, we have had different messages or muddled
messages, European messages, American messages. We don't have a
message. So TTIP is a single, strong message about a robust,
revitalized West, not defensive, but also not aggressive. It is
about upholding standards, not eroding them. And it has an
impact on each of the countries that we could discuss. Dr.
Green mentioned China. It is not about isolating China. It is
about defining the terms of China's integration, what standards
do we talk about? It is about Russia. TTIP is essentially a
reassertion of Western values, robust international law,
predictability and commercial contracts, human rights, all of
that. That is anathema to Vladimir Putin. And he is conducting
what the KGB used to call ``active measures'' to subvert the
TTIP because he understands what it means. So it has a huge
impact on Russia. It is a symbol of unity.
The last piece is how we together will relate to the
international rules-based system. We were the stewards of that
system. And so the question of the TTIP is can we again
establish standards at a high level that protect our workers,
our consumers and labor, or do we allow each of our standards
to start to erode because we don't have an agreement? Those are
the kinds of things that I believe will strengthen the
international system rather than subvert it. Thank you.
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Mr. Poe. Thank all of our witnesses. I will yield 5 minutes
to myself for some questions and then we will move through the
panel as well.
Big scheme of things, I believe in free trade and trade
with countries throughout the world for all the reasons we have
talked about. The problem is always, as my friends have said,
the devil is in the details. There may be something in an
agreement that we don't like for a lot of reasons, politically,
economically, human rights, whatever. We have got TPA that I
think, Ambassador, you said has been approved 18 times in the
last 30, 40, 60, 80 years.
Ambassador Hills. Seventy years.
Mr. Poe. Seventy years. Thank you, Ambassador. And then we
have TTIP and TPP. We start with the Trade Promotion Authority.
Congress has to approve that and there is some cynicism in
Congress because we can't get much information from the
administration. We have asked the administration eight times to
testify before our Committee on Foreign Affairs. I had spoken
with Mr. Froman. Michael Froman, in 2013, was the first time he
promised me he would give me a private briefing. Well, we
haven't had it yet. So there is some skepticism or suspicion,
if you will, about what has taken place because Congress then
has the problem of well, do we give the administration the TPA,
the Trade Promotion Authority, even though we are not really
getting much information out of the administration on what the
end game is with these two trade agreements?
Ambassador, can you help us out a little bit about what is
going on with the administration and whether we should press
that issue a little more or is that just the way it is?
Ambassador Hills. I have to say when I served, I spent a
good time with my friends on the Hill, both in this body and in
the Senate. I found having executive sessions with those who
were interested, and often it is hard to get Congress to be
interested, an executive session is useful. And I say that
because when you are negotiating, whether you are negotiating
to buy your house or your car, you want to keep your
negotiations not public. You don't want them on the front page
of the newspaper so the persons you are negotiating with know
what your strategy is. But Congress and the Executive Branch
must have a collaborative arrangement. I can tell you it works.
I could not have done the negotiations that we did without
my friends on the Hill. They understood that it was necessary
not to publicize so widely what we were trying to get from
multiple governments. Because what you want to get from
Government A may offend Government B, and so any negotiation
requires some degree of discretion.
I would encourage you to have executive sessions and I am
certainly happy to encourage Mr. Froman to meet more often with
you. I am shocked that you say you have not seen him since
2013.
Mr. Poe. For a briefing, that is correct. I appreciate that
insight and going on, moving on to the specifics of the two
agreements, let me just talk about Europe.
Dr. Hamilton, anybody else can weigh in on this as well.
When I visited Ukraine, the President told me that he sure
would like to see some natural gas coming from the United
States. In 2009, I think, the Russians turned the gas off for 2
weeks in the winter. It was cold because I happened to be there
for part of that time. I understand the economic hostage that
the Europeans feel. You can hear it in what they say because
they are very careful about saying things to me, it seems like,
to not offend the Russians because they are getting their
energy from them.
So just theory, not the details of an agreement with
transatlantic partnership, how would that help economically
Europe, but also help economically the United States if we
dealt with energy, for example.
Mr. Hamilton. Thank you, Mr. Chairman. Well, you are
absolutely right. Energy is a really important part of this
relationship. The quick answer would be that a TTIP would
enable us to go around some of those onerous requirements you
mentioned, the Department of Energy and so on because if we
have a free trade agreement with partners, much of that opens
up. But it doesn't quite do the job.
My critique of the current TTIP is that there is a
discussion about a proposed energy chapter, but both sides have
not quite embraced it. And it is not only about free flow of
energy in the trade sense because many on the U.S. side would
say well, if we get the trade deal it frees up all of those
problems, so what is the issue? Why do we have to have a
chapter? I think it goes more to this point about standards and
norms.
If we could agree across the Atlantic on some basic
principles governing energy trade to strengthen the rules-based
order, that would become core, global benchmarks. And Ukraine
is a good example. We have currently, across the Atlantic, for
instance, noncontroversial, a basic principle that when a
monopoly owns a pipeline, third parties have mandatory access
to that pipeline. That we agree. In the United States, we
agree. In the EU, it is not a global principle. And you can
imagine if we could enshrine that as a principle what it would
mean for a country like Ukraine because it would start to raise
the bar in terms of how we engage. So setting the bar higher,
because of how we work with Europeans is really an important
part of TTIP. It goes beyond opening up just the transatlantic
market, but we could do that at the same. That would provide
huge benefits for U.S. energy producers.
You see the other argument was about Asian prices being far
higher than in Europe, but that has now changed. And the
political signal to those who have to invest in infrastructure
over a 5-, 10-year period happens today. They don't invest for
5, 10 years if they don't get the political signal now. And
that is why the third element of why that is so important.
Mr. Poe. Thank you, Dr. Hamilton. My time has expired. I
will yield to the ranking member from Massachusetts, Mr.
Keating.
Mr. Keating. Thank you, Mr. Chairman. TPP is supposed to
help address the U.S. trade issues with China and China has a
long-term history of currency manipulation. During the time
that TPP has been under negotiations at least 60 senators and
230 members of the House have called for binding currency
disciplines to be included in the TPP. As far as I am aware,
U.S. negotiators have not even introduced language related to
currency, much less secure its approval from other TPP parties.
If the TPP lacks enforceable currency rules, it seems China
and other manipulators would be free to conduct business as
usual. How then will TPP be an example of the U.S. writing the
rules? And is the freedom to game the system by manipulating
currency really a rule we want to promote? I will let any of
the panelists address that.
Mr. Green. Thank you. Our goal with China over the long run
should not be to increase government control of currency. Our
goal should be gradually for China to move toward more of a
market-based currency so that the value of the renminbi
reflects what is fair and economically logical. So I would
think in our negotiating strategy we should be taking measures
that encourage that move toward market-oriented factors, and in
a broad sense TPP and TTIP will do that and will reinforce
those within the People's Bank of China or within the Chinese
system who also think that their current policies are a trap
for them. They can't manipulate monetary policy effectively
with the current currency strategy that they have. It is a
longer-term game with China that I think should be shaped by
market-base rules.
And the other thing about currency manipulation, I would
say, is the G7, the G20, the IMF have acknowledged that a lot
of us, including the United States and Japan, have engaged in
monetary using to get out of the financial crisis, the economic
crisis we were all in and in Japan's case to get out of
deflation. And I think that is sort of self-policing process
that is quite effective in these international financial
meetings and organizations. There is legislation, of course,
for the Treasury Department to report on currency manipulation
and that would be an area to focus, I think, if there were
concerns going forward.
Mr. Keating. What would be the harm in having that kind of
language inserted? Why is that not addressed? Why do you
suppose that that is not in the agreement?
Ambassador Hills. In my own view, the trade agreement
should try to open the market and create opportunity. We have
institutions like the IMF and the G20 that can focus on
currency. We have been using our currency to try to stimulate
our economy. We would react poorly in my humble opinion, if
other countries or even an institution were to tell us that we
should back off. So I think that our trade agreements, both TPP
and TTIP, should seek to open opportunities.
You mentioned jobs in your opening remarks. And I was
struck by the fact that even with the 28 nations that make up
Europe, we are losing competitiveness because of regulatory
turmoil. And by having harmonization, we will help small- and
medium-sized businesses that are responsible for 90 percent of
the new jobs. There are many small businesses in the United
States that do not export to countries that speak their
language, that want their product, because they cannot handle
the paperwork.
Mr. Green. I would, of course, agree and the only thing I
would add is that in these agreements, these kinds of
mechanisms are always reciprocal. So we may have a mature and
fair and market-oriented sense of whether there is currency
manipulation, but our partners in these agreements will also
have the opportunity to set up triggers. And we will lose
control of that if we are not careful.
So we have a system with the IMF, the G20, the G7 that is
effective that works for us. There is the legislation on
treasury reporting, but we want to be careful about
accidentally arming our trading partners with things that would
be used against us with far more devastating effect than we
might consider using them ourselves.
Mr. Keating. Great. Thank you. I yield back. My time is up.
Mr. Poe. I thank the ranking member. The chair will
recognize the gentleman from California, Mr. Issa, for his
questions.
Mr. Issa. Thank you. And it is really a pleasure to have
you here.
Ambassador, I will start with you. During the NAFTA era,
first Canada, then Mexico, I think we discovered something
which is even when people say they are for free and fair trade,
everyone has something that is missing that needs to be
included. When we did Canada, the labor unions didn't have a
problem because the AFL-CIO moves across those borders
transparently. Even though there are very strong unions in
Mexico, lo and behold, if U.S. unions were not welcome, then
they objected.
Moving forward though, we have in the case of Europe, for
example, partners who join NATO and pay a very small share.
They want common defense and in some cases to even join us in
defense of our world liberties, but they do so at about half as
much contribution. These have never been part of trade
agreements. In other words, we talk about harmonization--and I
am concerned--but whose harmonization? If it is not explicit
within the bill at the time that Congress approves it, then are
we harmonizing the European Union changing laws? That is what I
want to get to.
The European Union is and I will be in Brussels in a couple
of days, and someone will note that I have said this, but the
European Union is an unfair trading partner because they do
create nontariff trade barriers all the time and they do it
systematically.
Do you believe that the administration can effectively
create at least an arbitration capability so when they put up
nontariff trade barriers, time and time again, and we will just
use the fact that you can't sell an oil unless you can certify
that the container that carried the oil, vegetable oil, never
had a GMO in it. Okay. Now the absurdity of--by the way, it
wouldn't matter if it wasn't consumed or not, whether it was
being frying oil or anything. They wanted none of it.
Those sort of decisions are currently available to the
Europeans. They use them regularly. Today, they are trying to
break up Google. They have a number of those. So I guess my
question is it used to be trade was all about trade. Then it
became trade plus union considerations under the guise of human
rights. Then it became environmental in addition to that.
Should we also look at the regulatory burdens that may be
placed on our companies when they do try to export in a low
tariff environment and find these nontariff trade barriers
being erected? Is that something the administration should be
putting into trade agreements, at least the process?
Ambassador Hills. Actually, the focus of the TTIP is to get
regulatory harmony and the greatest amount of economic benefit
will come not from tariff reduction, although you will get some
of that. Because our average tariffs are about 3 percent, we
had several dozen that are very high.
Mr. Issa. Have you ever tried to import a leather jacket?
You are going to find out that there is like 12 different
tariffs we still have in place.
Ambassador Hills. But the regulatory problem, you know, you
want to buy a car and you want to sell a car, we have different
rules for the lights, the steering wheel, the windows going up
and down.
Mr. Issa. Let me get you on that, because that is perfect.
You were there during the NAFTA negotiations. Mexico agreed to
allow our automobiles in under specific requirements including
an unlimited amount of early automobiles. Mexico has
systemically tried to prevent those after the fact and today
they are preventing the export of older U.S. cars which--some
of which have been salvaged and so on. There is no question.
But they are preventing it in spite of an agreement in NAFTA
and their guise is that these are polluting. So even in the
case of our agreement with Mexico, Mexico simply has
disregarded elements of the trade agreement and we have no
enforcement mechanism for it.
And I bring this up because I support free trade, but I
also watched China sign on to the WTO and then ignore it;
Russia get into the WTO and then ignore it. These countries are
right now exporting, if you will, more great American movies
than we do. The problem is they were originally ours.
Ambassador Hills. Well, let me focus on your point about
Mexico. Our trade with Mexico has gone up five fold. Our small-
and medium-size businesses----
Mr. Issa. And I am totally there for that. I came and I
argued on behalf of the chamber for it. But it is not a
question of successes. The question is when they selectively,
any trade partner, uses a tactic including one explicitly
prohibited, do we demand that the administration put from past
experience arbitration or other capability to stop it? Like I
say, it doesn't matter how much you trade with Mexico, if you
tried to export a few hundred thousand cars that are surplus in
the U.S., older cars, you will find out Mexico won't take them
even though they signed an agreement saying they clearly would.
Ambassador Hills. What Mexico has agreed to is to give
national treatment. And they do not have a surplus of old cars.
The same pollution standards----
Mr. Issa. Ma'am, ma'am. Have you been to Mexico lately?
There are so many old Volkswagens driving around there, they
simply don't want our new old Volkswagens.
Ambassador Hills. What I was about to say is that the
pollution standards for those coming into Mexico and those that
are there are the same. They are given national treatment. If
someone is exporting and feels they are not getting national
treatment and they are being discriminated against, yes, there
must be a mechanism for resolving that dispute. That has not
been a primary problem with Mexico. Our trade has increased.
Our investment has increased. In fact, most manufacturers and
particularly, small and medium size manufacturers, will say
that they not only sell things to one another back and forth
across our northern and southern borders, they make things
together.
Mr. Issa. I was only asking you, should in a trade
agreement there be a mechanism if a company claims that to be
true? The fact is, it is true and we do have the companies that
have found these changes that unfairly, essentially after the
fact, decide they are no longer going to take American cars.
Ambassador Hills. Is a mechanism?
Mr. Issa. Okay, so you do believe it should be there and it
should be enforceable?
Ambassador Hills. There is a mechanism in all agreements.
NAFTA has one. The WTO has one.
Mr. Poe. The gentleman's time has expired.
Mr. Issa. Thank you, Mr. Chairman.
Mr. Poe. The chair recognizes the gentleman from
California, Mr. Sherman, for his questions.
Mr. Sherman. Thank you. All the advocates of these
agreements talk about exports, but they don't subtract out
imports, so then they argue that if we export $1 billion and
import $2 billion that is great because we have got $3 billion
in trade. The fact is if exports create jobs, imports take them
away. That is why the change in our trade policy that began in
the late 1980s has accompanied the total destruction of the
American middle class.
We focus just on the jobs we lose. But that is not the sole
focus. It is keeping wages down. First, an employer says--and
the Ambassador was talking about how employers love this
because they can say we are going to cut wages or we are going
to move the jobs. We will open up a new plant or the nicer ones
say, we have got to keep wages low because we face free access
to the U.S. market from 50-cent-an-hour Vietnam labor. So we
have got to keep wages low.
Then some factories shut down. That creates more workers.
Supply and demand, that keeps wages down. And then states see
that wages are down, the supply of workers is up, we had an
economic crisis, so they become right to work states and then
no unions, no raises. And so the decimation of the middle class
has been accomplished before we even lose many jobs. But of
course, we have lost millions and millions. So the American
people aren't going to allow us to do this unless we fool them
and tell them it is about national security because they know
it hurts our country.
Now we are told that this is an anti-China system that we
are creating. Well, wait a minute, the same advocates are the
ones who advocated the worst trade deal we ever had permanent,
most favored nation status with China. So we enter into that
agreement in the late 1990s. We give away millions of jobs to
China which strengthens them to the point where in order to
repair the geopolitical problem we have to give millions of
jobs to China's neighbors. So first you give the jobs to China,
strengthen them, and then give the jobs to China's neighbors to
strengthen them. Everybody is strong except America and our
families.
Then we are told that we will deprive ourselves of the
great honor of defending Japanese and Korean islets. They are
really uninhabited rocks at great expense to the United States.
For the benefit of countries in the case of Japan, it has spent
less than 1 percent of their own money on their national
defense. So we will lose the chance to spend hundreds of
billions of dollars protecting islets which, if they have any
oil, and they don't, it is not our oil. But everything going on
at the Air Force and Navy is how can we spend hundreds of
billions of dollars in our research and procurement to prepare
ourselves to protect these islets and oh, by the way, let us
give away millions of jobs so that we will have the opportunity
and be invited to provide this defense of rocks for free.
No wonder all of Wall Street is for this deal and all of
America is against it. Although given the amount of money that
has been spent to propagandize to the American people, I guess
it is not surprising as many as one third could be fooled into
supporting this agreement.
My question is we are told that we have got to include
Vietnam in this agreement. We know we might have to include
Vietnam, because that is the 50 cent an hour labor that will
make sure we can really drive wages down in the United States,
but that is not the given reason. We are told we have to
include Vietnam because we will get free access to their
markets, but of course, Vietnam has no freedom and they have no
markets.
Dr. Green, is there any evidence that by signing this
agreement, the Vietnamese Government and its Communist Party
will not be in control of all major exports, $1-billion
contracts, $100-million contracts of American goods entering
Vietnam? Do they lose control so that some business person can
contradict party policy safely and import American goods?
Mr. Green. So this is an important question and I think it
is good that the ranking member and that you and others are
focused on it because we have an important stake not only in
our economic relationship with Vietnam, but with the
improvement of governance, human rights, and democracy in these
countries. I have been disturbed that the U.S. Government
spending on governance and human rights and democracy has
dropped almost in half in the past 8 or 9 years. I just mention
that because trade is not the answer for all these problems.
There are other tools we need to bring to this, but I think it
is an important question.
I worked for 5 years in the NSC for President Bush on Asia.
Went to Vietnam to press these issues. Vietnam reformed about
halfway, the so-called Doi Moi reforms. So about half of the
Vietnamese economy is government dominated and about half is
moving toward a much more free market direction. We definitely
have an interest in terms of economics, strategic relations and
human rights and democracy in spreading that nongovernmental
sector.
Mr. Sherman. Do you think that a business person in
Vietnam, when they get a call from the Communist Party saying
don't buy the American goods, oh yes, we have published our
reduction in tariffs. Oh, yes, we have signed written
agreements, but we are telling you on the phone don't buy the
goods, that that businessman is going to call a press
conference, denounce the Communist Party and announce how he is
being pressured? Can you imagine that happening in Vietnam? Or
is what is much more likely the businessman will say, ``Yes,
sir. I will buy the German goods if you think that is better. I
will buy the Chinese goods if you think that is better. I will
do whatever the party wants.''
Can you point to one case where someone in control of a
$100-million enterprise in Vietnam has stood up and denounced
party interference in their import and export decisions? And it
is never going to happen, is it, because they are going to be
killed.
Mr. Green. But is there a case where an American CEO has
stood up and condemned policy in the United States that doesn't
directly affect their business? I would say this though----
Mr. Sherman. Well, I am talking about something that would
affect their business and yes, there are plenty of business
people that condemn our foreign policy every day from both
angles. I hear from them every day. I know my time has expired,
but the idea that you are going to have labor rights in
Vietnam, that you are going to have free markets in Vietnam,
that no one is going to be disappeared in Vietnam, is something
you can believe only if you are so dedicated to this agreement
that your eyes are closed. I yield back.
Mr. Green. So I spent time on the ground in Hanoi.
Mr. Poe. Briefly comment or answer that.
Mr. Green. Thank you, Mr. Chairman. I spent time on the
ground in Vietnam, working to expand the number of house
churches, to end the prosecution of Catholic bishops and
parochial schools when in government and we had success. Why?
In part because at the time we were negotiating normal trade
relations. We had considerable leverage (a), and (b) because
the Chinese ultimately did not want to fall into China's orbit.
So we have leverage and we have an opportunity now to
influence this and no, Vietnamese business leaders are not
standing up and condemning the Communist Party, but many, many
more Vietnamese than Chinese are on the internet and in other
ways protesting their government as they have more
opportunities and more choices.
Mr. Sherman. Dr. Green, every single group in America
dedicated to human rights in Vietnam says vote no on TTP. I
yield back.
Mr. Poe. I thank the gentleman from California. He yielded
back twice, so I will take it the second time. I thank all of
you for being here. You can see that this is an important issue
for all the members up here. Our opinions vary tremendously. We
will see how it ends up down the road, but thank you for your
time and thank you for your testimony. The subcommittee is
adjourned.
[Whereupon, at 3:15 p.m., the subcommittee was adjourned.]
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